Inflection Point, Bitcoin Price Surge :: Blockchain Letter, November 2015

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Dear Community,

Bitcoin price has risen 69% from the beginning of October to $401 yesterday.

For the first time since November 14, 2014, Bitcoin is up year-on-year.

We wanted to share some thought on what may be impacting price’s recent resurgence:

  • Chinese Buying
  • Real-Use Bitcoin Transactions Rising
  • Wall St. Addressing Blockchain
  • Virtuous Cycle

Chinese Buying

“China” is often the cliché answer to difficult questions about markets. In the past few weeks, Chinese inflows are clearly driving the pace of bitcoin price change. Strong inflows have pushed the price on Chinese exchanges to as much as a 9% premium over the world price.

Increasing Real Use of the Network

Excluding highly active addresses, transactions have now caught up with and are growing faster than price, indicating increasing, real use of the network.

Wall Street Addressing Blockchain

The intense focus from Wall St. is certainly a driver. A year ago, Fortress Investment Group was the only major financial institution that I know which was invested in blockchain companies. A surge in the past few months has brought that number to twenty-five major financial firms which have engaged blockchain.

Timeline of Blockchain Venture Investment From Financial Institutions:

Equity Investments

Below are investments that financial institutions have made into blockchain entities:

  • Pantera Bitcoin Partners: Fortress Investment Group, March 2014
  • Xapo: Fortress Investment Group, March 2014
  • Coinbase: BBVA, USAA, NYSE, WestPac, December 2014
  • Circle: Goldman Sachs, April 2015
  • BitFlyer: Mitsubishi UFJ Capital, Mitsui Sumitomo Insurance VC, August 2015
  • Chain: Citi, Visa, Nasdaq, Capital One, CITI September 2015
  • Ripple Labs: Santander, October 2015 (CME was an earlier investor)
  • Abra: American Express, October 2015
  • DCG: MasterCard, New York Life, CIBC, Transamerica Ventures, October 2015

Experimentation

2015 is an inflection point — financial institutions acknowledging the disruptiveness of the blockchain. These institutions are creating separate departments to explore synergies with the technology and even investing into companies in the space.

Below are how some traditional financial institutions that are now exploring the technology:

  • Lloyds Bank has sponsored hackathons that include blockchain and digital currency projects.
  • BNP Paribas has looked into ways to incorporate bitcoin into one of its currency funds.
  • JP Morgan is one of the founding members of R3. Jamie Dimon wrote in his letter to shareholders that the firm needs to look to Silicon Valley innovators to prevent the bank’s demise.
  • Credit Suisse is a founding member of the R3 blockchain partnership.
  • Deutsche Bank is opening three blockchain innovation labs: in Berlin, London, and San Francisco.
  • Bank of America has filed a patent for blockchain-based wire transfers.
  • UBS has started the Level 39 co-working space to encourage blockchain initiatives within the bank.
  • Barclays has partnered with Techstars to invest and incubate blockchain companies. Safello and Everledgr are two blockchain companies of those blockchain companies.
  • Royal Bank of Scotland to pilot blockchain proof-concept in early 2016.
  • Citigroup — Citi is working on “Citicoin” for cross-border payments and is an investor in portfolio company Chain.

At this point, traditional financial services firms conducting pilot programs or some sort of blockchain experiment are countless.

The R3 Blockchain Consortium

R3 has created a consortium of 25 banks looking to collaborate in creating standards in working with the blockchain. Below are other banks that are part of that consortium:

  • Morgan Stanley
  • HSBC
  • State Street
  • Commonwealth Bank of Australia
  • Mizuho Bank
  • UniCredit
  • Nordea
  • BNY Mellon
  • Mitsubishi UFJ Financial Group
  • Commerzbank
  • National Australia Bank
  • Royal Bank of Canada
  • SEB
  • Societe Generale
  • Toronto-Dominion Bank

Money20/20

In just four years, the finance and payments conference Money20/20 has become one of the biggest conferences for the financial services industry. It is a good barometer of Wall St. interest/hype in blockchain.

From one or two talks the first years to a dedicated stage with long lines last year, conference attendee interest in Bitcoin and blockchain tech/digital currency in general has been growing exponentially. This year, 11,000 people attended and the organizers sold the event itself for $120mm.

Virtuous Cycle

There may be several positive cycles feeding back into price:

  • Miners need to sell half as many coins to cover operational costs. This means much less sell pressure, increasing the influence demand has on price.
  • The new price volatility and media hype over this price rise is leading to new trading interest. Regulatory clarity and compliance with this regulation by most of the major bitcoin exchanges mean that traders can now do so with a sense of security.

We’re excited to see the world’s new appraisal of blockchain from a drastically different standpoint; regulation is clear, the technology has proven itself and is being widely embraced by traditional financial services, close to a billion dollars has been invested to build out the ecosystem. Bitcoin’s new price, whatever it may be when it settles, will have adapted to reflect these major developments.

FOMO

I know it’s not going to win me the Noble in Economics, but I think fear of missing out is a driver. Most people in the finance industry understand that the legacy payment rails — which predate the internet — will change a great deal in the coming decade. As long as the price of bitcoin was stagnant, it could be ignored.

The potential asymmetry in the bitcoin investment is compelling — it can only go down 1x, but may go up orders of magnitude. And, it seems more likely than a 1% chance that it does.

Interesting times,

 df

Dan Morehead
Chief Executive Officer
@Dan_Pantera


Roadshow & Conferences

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  • November 16–17, New York City
  • November 18, Washington, D.C.
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  • December 13–17, San Diego

If you are interested in a meeting, please contact Pantera’s investor relations team at 415–360–3600 or via ir@panteracapital.com.


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